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Real Estate Investors – where is the GO Zone?

I do have my finger in quite a few pies, as you will see, and today I thought it would great to enlighten folks on some tax laws that have come out to help the Gulf Coast areas that were hit by the hurricanes. They also apply to investors, who would like to invest in the new construction in these areas (or do renovations on the historic properties). The “GO Zone” is the Gulf Opportunity Zone and it applies to properties purchased after August 27, 2005 and before January 1, 2008.

Go Zone

According to the IRS, the highlight of these new laws include:

Expensing for Small Businesses Increased. Certain small businesses affected by Hurricane Katrina can annually deduct up to $200,000 in qualifying property expenditures made in the disaster area.

Special Bonus Depreciation to Help Businesses Rebuild. Businesses of all sizes affected by Hurricane Katrina can take a special first year depreciation deduction for qualified property placed in service after August 27, 2005, and before January 1, 2008. The special deduction is equal to 50 percent of the property’s depreciable basis.

Deduction for Demolition and Clean-up Costs. Taxpayers may choose to take a deduction for 50 percent of any qualified GO Zone clean-up costs that would otherwise be included in the basis of property.

Net Operating Loss Carryback Extended. The carryback period is extended from two to five years for net operating losses attributable to Hurricane Katrina. This provision will allow some businesses affected by the hurricane to obtain a refund of taxes paid in earlier tax years.

Work Opportunity Tax Credit for Hurricane Katrina Employees. The Work Opportunity Tax Credit provides businesses with an incentive to hire individuals from groups that have a particularly high unemployment rate or other special employment needs.

Income Exclusion and Employer Credit for Housing Employees In the Region Affected by Hurricane Katrina. Up to $600 per month is excluded from an employee’s income for employer-provided housing in the region affected by Hurricane Katrina. Employers are also entitled to a significant tax credit for providing such housing.

Think about the implications of this. If you have a huge tax bill this year, OR if you had one for the past 5 years, you can use the 50% depreciation credit to offset it! Amazing! The kicker is, when you sell the property you’ll have to pay it back to the government, but if you hold it for 7 years, you won’t.

As everyone knows, Biloxi, MS was pretty much decimated, at least at the coast. There are tons of new buildings going up, even as we speak, and they don’t have the levee problems that New Orleans has.